Establishing Controls In Manufacturing

Apr 01, 2016

One essential aspect of business not always considered is developing controls. This could be related to a number of areas including how processes are handled, the accuracy of data, physical controls over products and materials, or internal controls.

I just completed a comprehensive document specifically related to process, procedures, and internal controls for one of my clients. This particular client did not have any formal written procedures, but stead a number of informal policies. Recently, management recognized the importance of documenting their current polices and implementing additional regulations for protection and to improve efficiencies.

There are situations where a product may leave the facility without approval. Establishing safeguards and security measures to prevent such events is crucial to your business. Another example of physical controls can be those related to scrap. In some industries, scrap can be a considerable amount which may be costly. A significant resale value of such scrap may lead to intentional misuse and potential fraud. Having set standards and continuous monitoring can help deter possible fraud.

Another area requiring controls is with regard to the cost system. Most likely there are calculations and determinations made periodically within the cost system. Many times when reviewing a system, I discover erroneous and counterintuitive information. Unfortunately, by the time it becomes evident during my review, a considerable amount of time has passed. Thus, cost managers have been trusting their system’s information without evaluating to ensure the results are reasonable and realistic. Implementing controls within the program can help indicate errors to prevent these ongoing inaccuracies. I have seen many instances where manufactures have relied upon their inaccurate cost information to determine if they should enter into a product line or produce a specific product.

Of course, you do not want to implement so many controls there is no room for critical thinking or growth. However, you do want to eliminate as many inefficiencies as possible. Consider implementing some or all of these various controls. Start today by taking control!

Categories: Cost Accounting